Proton to consolidate with Perodua? What this could mean for Lotus

Owned in full by Malaysian automaker Proton, Lotus is at the mercy of its parent for continued funding. Thankfully, the Malaysians have proven to be good shepherds of Lotus, allowing a level of autonomy not usually seen among subsidiaries of the automotive world.

But that leadership may be placed in jeopardy if Proton follows through with recently announced desires to consolidate with other Malaysian automaker Perodua. Talks of the two merging have been fruitless in the past, but the Malaysian Star reports that this time things may be different given the severity of the global economic downturn.

On the topic of a merger, Proton managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir remarked to StarBizWeek: “The timing is now. People are planning to cut cost and reduce size and all the other OEMs (original equipment manufacturers) are doing that. Even Toyota is consolidating”. Proton hopes that it can reduce costs through joint development and manufacturing with Perodua.

Perodua isn’t so enthusiastic about a deal at this point, however. Perodua group managing director Datuk Syed Hafiz Syed Abu Bakar believes that the opportunities for greater synergy are few as the two automakers concentrate on different markets. “One is focusing on the compact segment and the other on sedans,” and went on to say that he believes there is ample room for both Perodua and Proton to exist in the global marketplace.

In addition, some synergies between the two automakers already exist. Perodua manufactures the cylinder heads for Proton’s line of Campro engines (designed by Lotus, by the way) and further partnerships are currently in the works.

Nonetheless, Proton leadership is confident that further cost savings of “at least 10 percent” can be realized through a merger and are pressing forward with talks. “We need to be competitive. Our cars need to be cheaper. This is a cost element and we need all the capabilities of the country to do this,” said Syed Zainal.

In his eyes, an ideal arrangement would be similar to that of PSA Peugeot Citroën. “Peugeot and Citroën are different brands, but 60% of their parts are commonised,’’ he says. “What you see is not common but what you don’t see is.”

Given that the Malaysian government is heavily involved with both companies, the final push for consolidation may come from national leaders above.

What this could mean for Lotus

With a new controlling partner in the picture, Lotus’s future could be uncertain. Under one scenario, we could see Lotus continue unabated which is what we hope to see here at Lotus Enthusiast. Under Lotus CEO Michael Kimberley’s leadership, Group Lotus is operating spectacularly well with an attractive product line and finances in the black. This is in sharp contrast to Proton, which finished in the red for fiscal year 2008 with further losses planned in 2009. Why mess with a profitable division?

To stem those Proton losses however, Proton may be desperate to cut costs in any way possible, including cutting Lotus funding or possibly diverting Group Lotus funds. Under the second set of eyes from Perodua, scrutiny to cut costs will no doubt be even higher. In that case, all we can do is hope that cost-cutting mentality doesn’t find its way to Hethel.

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